Audit Procedures for SBL: Inherent and Control Risk

This article discusses the audit procedures for SBL's inherent and control risks, including classification testing, completeness testing, cut off testing, occurrence testing, existence testing, and rights and obligations testing.

Running head: AUDITING THEORY AND PRACTICE
Auditing Theory and Practice
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AUDITING THEORY AND PRACTICE
Date:12.09.2018
To: All Personnel
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Subject: Re- Audit procedures which are to be implemented by SBL
The major risk areas pertaining to SBL were seen with inherent risks such as nature of
business, changes in industry increasing inflation and sustainability initiatives such as water
conservation. In addition to this, control risk needs to be identified information from different
locations, changes in staff, changes in work environment, media reports and risks relating to
fraud. The measures relating to audit procedure for the inherent and control risk of SBL have
been discussed with classification testing, completeness testing, cut off testing, occurrence
testing, existence testing, valuation testing, rights and obligations testing (Yoon, Hoogduin and
Zhang 2015).
Audit procedures for SBL have considered the adherence of quality of financial
information with number of perspectives. The exact procedures will be associated to the use of
procedures which are dependent on nature of business along with audit assertions to improve the
present concerns associated to audit assertions (Cohen et al. 2017). The six procedures followed
for evaluation of audit risk in SBL are enumerated below as follows:
i. Classification testing- SBL needs to consider classification testing for the transactions to
know whether they are correctly recorded in the accounting records. It needs to be
ensured that the auditors comply with “ASA 315-Understanding the Entity and Its
Environment and Assessing the Risks of Material Misstatement”. For instance, SBL
faces considerable amount of risk associated to its operating environment which includes
lending of money. However, the bank faces several environmental concerns which are

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associated to risk off defaults. The implementation of classification testing as per ASA
315 will require the auditor to perform assessment of risk based on understanding the
entity is environment including the internal control (Auasb.gov.au. 2018).
ii. Completeness testing- The various types of audit procedures such as testing of whether
there is any missing entry in the accounting record will be conducive for maintaining
fairness and accuracy of the financial reports. The implementation of ASA 500 will be
appropriate in gaining better approach towards audit evidence. In addition to this,
“Auditing Standard ASA 330 The Auditor's Responses to Assessed Risks” will
contribute to the completeness testing by data mining the risk of material misstatement,
financial closing process and identifying other significant risks (Chan and Vasarhelyi
2018). The changes associated to the work environment of SBL needs to be understood
by the control risks which are associated to different types of ramifications in corporate
policies. The main features as per ASA 330 will be beneficial in designing and
performing audit procedures in responding to the assessed risk of material statement and
also responding to the same. The auditor’s assessment of risk pertaining to ASA 330 will
also include the expectations of operating efficiency along with substance of procedures
which cannot be provided with appropriate audit evidence. Lastly, such a measure will
document specific matters associated to the audit procedures which will be based in
response to the assessed risks. The completeness testing will further ensure that enquiry is
made to the clients have included the additional obligations which were not recognized in
the financial statements. Therefore, completeness testing will ensure a holistic approach
towards issues such as changes in industry and introduction of new services such as EFT
based transactions (Auasb.gov.au. 2018).

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iii. Cutoff testing- The significant nature of the audit procedures followed with cut-off
testing needs to be determined with the fact whether transactions are recorded in the
present reporting period. For instance, control risks such as changes in staff may lead to
failure of the IT department to track a particular issue and report the same within a
specified date. The issues concerning the timeliness due to the risks of changes needs to
be amended by cut-off testing. It may be also seen that various types of services provided
by the bank may be done on the last day of the month which will have an effect on the
next month. Therefore, cut-off testing will ensure that the bank will to adopt predefined
set of measures for implementing and ascertaining recognition of the transactions as and
when they have occurred. The compliance of the auditing standards as per “ASA 200-
Overall Objectives of the Independent Auditor and the Conduct of an Audit in
Accordance with Australian Auditing Standards” will ensure that auditing functions are
in conjunction with ASA 101. This will ensure that the company has maintained
alternative measures in case there is any instance of failure of the company to track the
transactions related to timeliness. The implementation of ASA 230 will be further
conducive in stating about the reasons for inability to comply with a particular audit
procedure (Legislation.gov.au. 2018).
iv. Occurrence testing: The audit procedure as per the occurrence testing will test whether
the transactions with the client has actually occurred. Since SBL is exposed to control
risks such as Fraud Risk the transactions pertaining to Joe and other employees needs to
be investigated with a occurrence testing. The consideration of such a testing needs to be
complied with Auditing Standard “ASA 240- The Auditor's Responsibility to Consider
Fraud in an Audit of a Financial Report”. This will assess and identify the material

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risks due to fraud in the social level. In addition to this it will be also respond to the audit
procedures by overriding the controls (Legislation.gov.au, 2018).
v. Existence testing- This audit procedure will be able to determine whether there is any
existence of the asset or liability. This is particularly necessary in relation to the
launching of new services by the company (Louwers et al. 2015).
vi. Rights and obligations testing- SBL is depicted to having significant amount of risk
with media reports. The audit procedure as per this test will ensure that clients have the
legal obligations related to the rights of using such media content. This audit procedure
will also determine whether there is an existing risk of assertion pertaining to outage of
the computer system in any service facility (Louwers et al. 2015).

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References
Auasb.gov.au. 2018. Auditing Standard ASA 200 Overall Objectives of the Independent Auditor
and the Conduct of an Audit in Accordance with Australian Auditing Standards [online]
Available at: https://www.auasb.gov.au/admin/file/content102/c3/ASA_200_Compiled_2015.pdf
[Accessed 12 Sep. 2018].
Auasb.gov.au. 2018. Auditing Standard ASA 330 The Auditor's Responses to Assessed Risks
[online] Available at: https://www.auasb.gov.au/admin/file/content102/c3/ASA_330_27-10-
09.pdf [Accessed 12 Sep. 2018].
Chan, D.Y. and Vasarhelyi, M.A., 2018. Innovation and practice of continuous auditing.
In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.
Cohen, J., Krishnamoorthy, G. and Wright, A., 2017. Enterprise Risk Management and the
Financial Reporting Process: The Experiences of Audit Committee Members, CFO s, and
External Auditors. Contemporary Accounting Research, 34(2), pp.1178-1209.
Legislation.gov.au. (2018). ASA 240 - The Auditor’s Responsibility to Consider Fraud in an
Audit of a Financial Report - April 2006 . [online] Available at:
https://www.legislation.gov.au/Details/F2006L01368 [Accessed 12 Sep. 2018].
Legislation.gov.au. 2018. ASA 315 - Understanding the Entity and Its Environment and
Assessing the Risks of Material Misstatement - April 2006 . [online] Available at:
https://www.legislation.gov.au/Details/F2006L01372 [Accessed 12 Sep. 2018].
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing
& assurance services. McGraw-Hill Education.
Yoon, K., Hoogduin, L. and Zhang, L., 2015. Big Data as complementary audit
evidence. Accounting Horizons, 29(2), pp.431-438.